Does anyone know what a golden parachute is? I thought i heard this before in a Ron Jeremy video, but wasn’t sure what the correct CFA terminology was…
The severence and big bonuses received by the target company’s managers to leave their position after the merger. I am not sure though
Yeah, it comes right after the poison pill flip-out…
Right, CFABoston. Golden Parachutes in a nutshell are ways to compensate top executives in the the case they are removed from their position. This “in theory” helps prevent hostile takeovers, and also helps to bring in better talent to the management teams, since they will have more security. Also, they put in effect so a top executive will maintain his objectivity when considering takeover attempts (since if he loses his job he’s gettin PAID)
pre merger defense - are compensation agreements betw. target company and its senior managers. - they allow the executives to receive payouts, usually several years worth of salary (because of job loss)
How does knowing he gets a big payoff help them be objective for takeover attempts - would it not make them more inclined to do shitty deals since they know they are covered no matter what???
Because in theory, it’s not talking about the quality of the deals, just that since they know they will be taken care of, they can at least be open to the idea of a takeover and evaluate the proposal. Not to mention that is one small aspect of the the entire deal. They probably also have extensive stock options, so they will definately push for the best deal.
That makes sense, thanks for the explanation lance
Sometimes these severence packages are so lucrative that firms will back away from deal. We’re talking large bags of cash and options. Anyone read Barbarians at the Gate?